Oil companies plan NAFTA suit over research demands

Two U.S. oil companies drilling oil off Newfoundland are planning a lawsuit under the North American Free Trade Agreement over demands that they spend money on research in the area.

Exxon Mobil Corp. and Murphy Oil Corp. are seeking about $50 millionin damages from the federal government, challenginghow the Hibernia and Terra Nova offshore oil projects are structured.

The Canada-Newfoundland and Labrador Offshore Petroleum Board requires that the companies operating in the fields spend a portion of their profits on research within Newfoundland and Labrador.

Exxon Mobil has a majority stake in Hibernia and a minority stake in Terra Nova. Murphy Oil has a minority stake in Hibernia, the first of three oil fields to go into production on the Grand Banks.

Both companies have filed notices of intent to sue within a 90-day notice period required under the trade agreement.

Theoffshore petroleum boardis a federal-provincial body that regulates the petroleum industry.

The companies blame the Newfoundland and Labrador government for insisting on greater local benefits through the development agreements.

The companies claim that the board's research demand, enacted in 2004, violates the terms of NAFTA.

Hibernia began production in December 1997. The first oil was drawn from Terra Nova in January 2002.

Danny Williams, currently campaigning for re-election as Newfoundland and Labrador's premier in an Oct. 9 election,made fighting oil companies for greater benefits a hallmark of his first term.

Williams managed to negotiate a purchase agreement for an equity stake in the pending Hebron megaproject. When talks broke off in early 2006, Williams singled out Exxon Mobil for delaying the agreement.

A tentative deal, in which Newfoundland and Labrador will have a 4.9 per cent ownership stake in Hebron was announced in August.

Williams subsequently released an energy plan that calls for a standard 10 per cent equity stake in future oil and gas developments.